Economic Impacts

The most damaging impact of hydraulic fracturing is that the process will permanently remove hundreds of millions of gallons of fresh water from the water cycle. In addition to this fact, there are many more health, economic, and environmental impacts resulting from damage to the land, air, and water. Below are some of the most concerning economic impacts resulting from hydraulic fracturing.

Mortgages

Most people do not know that signing a lease with an oil and gas company can conflict with some requirements of a federally-backed home and farm mortgages. To ensure their homes and farms remain safe from legal entanglements, landowners should always check with their bank or mortgage lender before entering into a mineral rights lease [source].

Signing a gas lease without lender consent is likely to constitute a mortgage default. At any time before or after the drilling begins, a lender can demand the borrower to either terminate the lease or pay off the loan. Since the gas companies have pledged the gas leases as collateral for loans or brought in investors based upon the potential income the gas lease can produce, facilitating a lease termination may require protracted litigation. Further, it is not likely that most homeowner-borrowers will have the ready cash to repay the loan. This places the lender in an untenable position [source].

Oil and Gas Leases

Oil and Gas leases provide an opportunity for land owners in Michigan to profit from the extraction of oil and gas below the surface of their land. Also, these profits can be increased if a well pad area is cleared on their property and if the well removes profitable amounts of oil and gas. However, the terms of these leases are complicated and not the same for every landowner. Landowners are required to set the terms of the lease, including the price per acre, duration of the lease, royalty percentages, hazard protections, and any additional fine print [source].

The practice of lease negotiation is only in the interest of the company that approaches the landowner. Landowners need to beware of high pressure sales tactics and ensure they are not being taken advantage of when entering into leases [source]. From our research, we provide the public with basic information on the terms of a lease, the effect on property value, as well as potential conflicts with home or farm mortgages. It is the responsibility of the landowners to seek appropriate legal consultation in any decision making. If you have additional questions regarding the information we have collected on oil and gas leases, please don't hesitate tocontact us.

Property Value

Across the country, property values have diminished as a result of hydraulic fracturing. Once the well is drilled and the resources are removed, the quality of the property has been compromised by the industrialization process [source]. Home and land appraisals are based upon like-properties, similarly situated, and are used to determine market value, the loan-to-value ratio and the maximum loan amount. Reliable appraisals of properties subject to gas leases are difficult to obtain and potentially prohibitively expensive; it would require a comprehensive title search of area properties encumbered by gas leases [source].

A stark example comes from Texas, where controversial hydraulic fracturing has occurred more extensively. A home and 10-acre horse property that was on the 2010 tax rolls for $257,330 was reported to be worth $75,240 after hydraulic fracturing occurred on their property. After investigating the evidence along with a 30 minute testimony from the landowners, the Wise County Central Appraisal District Appraisal Review Board (responsible for providing accurate property assessments for tax purposes) voted to reduce the land value by 75 percent and the home value by 70 percent [source].

Prospective homeowners that are concerned about oil and gas operations within or surrounding a property will require proof that contamination has not occurred in order to ensure confidence in the purchase of the property. Even the possibility of hydraulic fracturing is enough to dissuade potential buyers [source]. It is important to note that the demands and interests of prospective homeowners directly contrasts with oil and gas companies' requirement that contamination must be proven in order to initiate the remedial process. Furthermore, the capped well hole and casings are a permanent structure on the property and will remain a permanent risk for landowners.